(Reuters) – Morgan Stanley joined Barclays and Macquarie in forecasting a single 25 basis point interest rate cut by the U.S. Federal Reserve this year, citing uncertainty from President Donald Trump’s tariff policy.
The Wall Street brokerage had previously said it expected two 25 bps rate cuts in March and June.
Peers Goldman Sachs and Wells Fargo continue to expect two interest rate cuts this year.
President Trump’s tariff policy is expected to drive up inflation and will increase pressure on the U.S. central bank as it looks to control persistent inflationary pressures.
“Imposing tariffs more quickly than we assumed would likely mean disinflation halts at a higher pace of inflation, blocking any near-term path to cuts,” Morgan Stanley analysts wrote in a note on Tuesday.
“Even if tariffs are avoided, we think their potential keeps uncertainty about PCE inflation elevated and keeps risks to PCE inflation tilted to the upside,” they added.
The personal consumption expenditures(PCE) price index for December, the Fed’s preferred price gauge, came in line with market expectations, data showed.
The central bank also left its benchmark overnight interest rate in the 4.25%-4.50% range at its January policy meeting, but Fed Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation.
“The path for monetary policy in 2025 remains highly uncertain,” the brokerage added.
(Reporting by Siddarth S in Bengaluru; Editing by Tasim Zahid)
